B.C.’s projected deficit grows again to $9.4 billion in latest fiscal update

British Columbia’s new finance minister said she is “realistic” about the economic challenges facing the province after announcing this year’s record deficit is projected to reach $9.4 billion.

Brenda Bailey said Tuesday that the forecasted deficit for 2024-2025 has grown by $429 million from the $8.9 billion estimated in the last fiscal update in September, mainly due to lower revenues.

But Bailey said the rising deficit projection will not change the provincial government’s intention to make “smart, targeted investments” to grow the economy, rather than cutting services.

She also promised affordability relief for B.C. residents on the path to a balanced budget.

“It’s my view (that) you can’t pour from an empty cup,” Bailey said of the need to build up the economy instead of short-term cuts. “And so, the work to fill that cup and to really unlock the economic potential that exists in British Columbia is work that’s ahead of us, and I’m really looking forward to doing it.”

Then-Finance Minister Katrine Conroy presented B.C.’s last quarterly financial update in September with what was then a record $8.9 billion budget deficit for this year, a figure that was already $1.1 billion higher than a previous update.

Conroy said at the time that the deficit increase was driven largely by lower corporate income taxes and natural resource revenue as well as costs for fighting wildfires, and Bailey said many of those situations have not changed, including lower-than-expected federal profit projections for corporations.

Bailey also said lower anticipated consumer spending, declines in forecasted natural resource revenues stemming from lower natural gas prices, and higher net spending by health authorities all contributed to the latest rise in the deficit.

In a written response to the latest fiscal update, BC Conservative Finance Critic Peter Milobar said the report “reveals a province sinking deeper into debt, plagued by revenues falling short of expectations and cost overruns on major projects.”

“If voters had seen this update before the election, I’m confident that David Eby would not be the premier today,” Milobar’s statement said.

The fiscal update also included some infrastructure projects where anticipated costs have increased, including the Broadway SkyTrain extension in Vancouver from about $2.83 billion to $2.95 billion and the Pattullo Bridge replacement from $1.38 billion to $1.64 billion.

“Meanwhile, our economy is slowing down, our budget deficit is expanding, and resource and business tax revenue is dropping,” Milobar said. “The government’s economic and fiscal update speaks for itself.”

The update also showed that B.C.’s debt level is projected to reach $130 billion by the fiscal year’s end, which is $1.4 billion higher than the September projection.

Bailey said the province does have a “strong foundation” economically, along with what she described as “one of the best debt-to-GDP ratios” in Canada at 22.3 per cent and almost $4 billion in contingency funds.

The province will see “modest” economic growth projected at 0.9 per cent for 2024, while next year’s growth is expected to come in at 1.9 per cent, she said.

But Bailey warned there is uncertainty looming, including the tariff threat from U.S. president-elect Donald Trump, as well as possible impact from immigration and interest rates.

The minister said the NDP government will be “careful” in reducing the record deficit “over time,” by growing the economy rather than cutting services, with $13.2 billion in infrastructure spending planned for this fiscal year.

The party had released a costed platform during the election in October that projected a budget deficit for next year to rise to $9.6 billion from the original $6.7 billion forecast, as revenue was expected to fall by more than $1.5 billion due to a number of promises and proposals.

Those include pledges of a $1,000-per-household grocery rebate next year, free off-peak transit for seniors and a middle-class provincial income tax cut of about $1,000 per household starting in 2026.

The rising deficit isn’t changing the government’s spending plan, Bailey said.

“About the grocery rebate, that’s work that is underway,” she said. “It’s going to take a bit of time for us to put that together, but the premier has been very clear that helping people address affordability is a priority for our government.”

The costed NDP platform listed about $2.9 billion in what it called new investments up to 2027, and Eby said at the time that the campaign promises were made so that “the maximum number of people benefit” from the intended affordability relief.

Conroy said in September in her last update as finance minister, that B.C.’s economic growth is expected to strengthen during the three years, but it will be up to her successor to determine the timing for a return to a balanced budget.

Last week, the province announced that the B.C. Public Service has temporarily paused all external hiring except for positions such as those in critical or front-line areas or involving the Indigenous Youth Internship Program and others.

The statement on the hiring freeze cited “a constrained fiscal situation” that requires the B.C. Public Service to make “the best use of its resources.”

In April, S&P Global Ratings dropped B.C.’s credit score from AA to AA-minus due to what the agency described as large government spending and the risk of outsized deficits. It was the third ratings drop from the agency for B.C. since 2021 when the province lost its AAA status.

S&P said then that more rating cuts may come in the next two years, given B.C.’s current fiscal course that would create rising debt and very low internal liquidity.

Another agency, Moody’s, maintained the province’s long-standing AAA credit rating but revised its outlook to negative.

&copy 2024 The Canadian Press